Will late payment law change post Brexit?

The only thing anyone can be certain about at this stage following June’s vote for the UK to leave the EU is that no one is going to be certain about anything else very quickly. Brexit has understandably created huge interest and nervousness in the business community as companies try to work out how the break from Britain’s largest trading partner will impact on them.

But with no sign of Article 50 being invoked to trigger formal exit negotiations, and those negotiations likely to be painstakingly lengthy, it will be while yet before the fog clears lifts and everyone can make their predictions with a degree of confidence.

Having been a member of the EU for over 40 years, UK business laws have absorbed huge tracts of European legislation in the form of regulations, treaties, directives, decisions and case law. Part of the initial delay is being caused by the government having to sift through all of that and decide what to keep and what to set aside once Brexit actually happens.

That, of course, will involve lots of decisions regarding contract law, including the legal frameworks governing the penalties payable for late payments.

Collecting payments within the UK

As far as anyone can be certain at this stage, it seems unlikely that Brexit will have much of an impact on the rules affecting payment terms within the UK.

The UK took the lead in 1997 when the government introduced the original “Late

Payment of Commercial Debts (Interest) Act 1998” a model that was subsequently adopted and further strengthened by successive EU late payment legislation. As such we consider it unlikely, but not impossible, that the UK’s late payment legislation will be scrapped by Brexit.

Collecting payments from EU countries

Where things are much less certain is how Brexit will affect the rules on recovering payments from partners in other EU countries. In the first instance, there may be an impact on payment terms and conditions. At present, payment terms with EU customers or suppliers are built around free market regulations, with no trade tariffs and rules on who pays tax and duty, if applicable. Once outside the EU, negotiating contracts with European firms will be much the same as it is for non-EU countries, with whatever trade agreements are negotiated creating additional red tape.

In the event of non-payment, chasing up debts is also likely to become more complex. At present, companies with debtors based in the EU have the same right to additional late payment penalties as they do with customers in the UK and they have access to a method of enforcing judgments anywhere in the EU via a European Enforcement Order.

Whether or not these EU-wide collection facilities will be kept as part of the Brexit negotiations remains to be seen.

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